GOP Candidates' Economic Discord
Policy + Politics

GOP Candidates' Economic Discord

At a moment when the fragility of the economy ranks at the top of American concerns, sharp differences have begun to emerge in how the leading GOP presidential contenders would solve the problem — illuminating not only a diversity in approach, but a striking contrast in the candidates’ governing philosophies.

The proposals range from those that are incremental, complex and possibly achievable, to slogans and ideological rallying cries that would have enormous difficulty becoming law.

Latest to put forward a blueprint is Texas Gov. Rick Perry, a former front-runner who fully embraced a number of longstanding and far-reaching conservative goals.

“My plan does not trim around the edges,” Perry said as he announced it Tuesday in South Carolina.

The centerpiece is a proposal that would give individuals the option to pay a 20 percent flat tax. Perry also would reduce the corporate tax rate from 35 percent to 20 percent; eliminate taxes on dividends and capital gains; make deep, unspecified cuts in federal spending; and establish individual retirement accounts outside the Social Security system.

The plan represented a sharp and intentional contrast to the less radical 59-point proposal put forward last month by former Massachusetts governor Mitt Romney, the front-runner for the Republican nomination.

Although Perry did not mention his chief rival by name, he spoke dismissively of those who “simply offer microwaved plans with warmed-over reforms based on current ingredients.”

Perry won strong praise from conservative economists and activists, who were pleased that he adopted many of their long-held goals. In doing so, his plan could help reverse the slide his campaign suffered as the result of his weak performances in presidential debates.

“I am impressed at the level of detail. For someone who was supposed to be thin, there’s a lot there,” said Douglas Holtz-Eakin, who in 2008 served as top economic adviser to GOP nominee John McCain’s campaign. “This is a very close cousin to some very serious plans that have been put forth historically.”

Added Grover Norquist, an anti-tax activist: “This does not solve all the world’s problems at once, but it’s a huge step in that direction.”

The proposal would be a boon to the wealthiest Americans, and that is one reason why previous flat-tax proposals, though appealing in their simplicity, have never gone far politically.

“The obvious winners are the rich,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. “How big, we don’t know yet.”

President Obama’s reelection campaign made a similar point.

Perry’s flat-tax plan “radically restructures the tax system and shifts a greater tax burden onto the middle class,” James Kvaal, the team’s policy director, wrote in a memo released shortly before Perry’s speech.

Although the Republican candidates differ on the specifics of their plans, the frame of the argument against the current White House occupant is the same: Obama contends that the rich are not paying their fair share of taxes, the GOP candidates counter that wealthy Americans, along with everyone else, are paying too much. What’s bloated, they insist, is the government.

Flat-tax proposals — which have been proposed by presidential candidates far back as Democrat Jerry Brown in 1992, and Republican Steve Forbes in 1996 and 2000 — are experiencing a political resurgence.

Former House speaker Newt Gingrich (Ga.) has a plan somewhat similar to Perry’s, in that it would give taxpayers an option to pay a 15 percent flat rate. And former Godfather’s Pizza chief executive Herman Cain’s signature “9-9-9” plan would combine a flat income tax with a new national sales levy and corporate taxes, all at 9 percent.

Though “9-9-9” was a catchy slogan that briefly propelled Cain to the top of the Republican field, a new Washington Post-ABC News poll indicates that it is out of favor, as voters have become more acquainted with its effects, which would greatly benefit the wealthy.

In the survey, 56 percent of all respondents and about half of the most conservative Republicans and independents expressed unfavorable impressions of the 9-9-9 plan. By comparison, respondents were about evenly divided on the idea of a flat tax; among conservative Republicans and independents, however, nearly three-quarters said they view the idea positively.

Presidential campaigns understand that economic proposals are about more than numbers and fine print. Voters look to them to get a sense of a candidate’s values and priorities.

“To me, the best economic plans are narratives,” said Columbia Business School Dean R. Glenn Hubbard, who was a top economic adviser to President George W. Bush and who is backing Romney in the 2012 race. “They tell the voters whether the candidate understands how the economy works and how they would approach it.”

If the measure of a candidate’s boldness is the array of entrenched interests he is willing to battle, none arguably would top former Utah governor Jon Huntsman Jr., who would eliminate every tax credit and deduction and set a three-tiered tax system of 8 percent, 14 percent and 23 percent.

Rep. Ron Paul (Tex.), a libertarian, is the most radical. He would scrap the income tax entirely, arguing that the government never had the right to impose it in the first place. He says he could balance the federal books through excise taxes, limited tariffs and by greatly shrinking the government.

Rep. Michele Bachmann (Minn.), who often cites her credentials as a former Internal Revenue Service lawyer, said she would “completely abolish the tax code” by replacing it with the flat and simple tax. However, she has not produced a detailed plan showing how she would do so.

Against all of those proposals, Romney’s economic plan, released last month in a 160-page book, would take a more cautious approach.

Romney would make more incremental changes to the tax code, although he promises to ultimately simplify it and reduce rates. His plan also focuses more heavily on trade — including a threat to impose higher tariffs on China if it does not boost the value of its currency.

Romney would reduce the maximum corporate tax to 25 percent, five percentage points higher than Perry proposes. He also would eliminate taxes on interest, capital gains and dividends, but only for Americans who make less than $200,000.

In its detail, Romney’s proposal reflects the management consultant he once was, said Alex Brill, a research fellow at the conservative American Enterprise Institute. “It’s much more an action plan of what he expects to achieve and accomplish.”

Romney has argued that although a flat tax sounds good in principle, it is not politically realistic. He also does not apologize for the relative complexity of his plan.

During a debate at Dartmouth College in New Hampshire earlier this month that was sponsored by The Washington Post and Bloomberg News, Cain asked Romney whether he could name all 59 points of his plan.

“I have had the experience in my life of taking on some tough problems. And I must admit that simple answers are always very helpful, but oftentimes inadequate,” Romney replied. “And in my view, to get this economy going again, we’re going to have to deal with more than just tax policy and just energy policy, even though both of those are part of my plan.”

At the same time, Perry sidestepped some of the political landmines that have doomed earlier flat-tax proposals.

Because it would be optional, those most likely to be hurt by the flat tax, primarily lower-income Americans, could choose to stay within the current tax system. And the most popular middle-class deductions — for state and local taxes, mortgage interest and charitable contributions — would remain intact for those who earn less than $500,000.

“He’s dodging a few bullets here,” said Mike Franc, vice president of government studies for the conservative Heritage Foundation. “My guess is that the distribution tables [measuring its relative impact on the rich and poor] will be less of a killing field” for the plan’s opponents.

But as a result of the flexibility in Perry’s plan, Franc said, it will be difficult for analysts to accurately predict what its economic and fiscal impact would be.

He added: “If you’re at the [congressional] Joint Tax Committee or the Office of Management and Budget trying to model this thing — good luck.”